Evening Report (VIP) -- January 25, 2013

CATTLE ON FEED: BULLISH... USDA's monthly audit of feedlot activity showed all three categories on the bullish side of pre-report expectations, giving the report a clear bullish read. Given the recent sharp price break, cattle futures should be higher to sharply higher Monday in reaction to this data.

The combination of fewer-than-expected placements and greater-than-anticipated marketings last month left the number of cattle on feed as of Jan. 1 below expectations. The number of cattle in feedlots continues to decline compared to year-ago... and importantly, is now lower than the previous month for the first time since September. The year-over-year and month-over-month decline in feedlot supplies should continue for months to come as U.S. cattle numbers tighten.

COF Report

USDA

Average

Range

% of year-ago levels

On Feed

94

95.6

94.2-96.2

Placements

99

104.1

96.2-108.8

Marketings

98

93.2

90.2-95.0

A weight breakdown of cattle placed into feedlots last month shows: lightweights down 10%; 6-weights up 7.8%; 7-weights up 5.3%; and heavyweights down 0.8% from year-ago levels. Given severe drought through much of the Plains, the rate of placements would likely have been greater if not for a limited supply of calves due to recent active placements.

COURT STRIKES DOWN CELLULOSIC BIOFUELS MANDATE... A U.S. Circuit Court of Appeals in the D.C. Circuit today said the Environmental Protection Agency (EPA) overstepped its boundaries in setting the mandate for cellulosic biofuels at a level that would help drive industry growth, rather than a hard estimate of how much of the fuel would be produced. But the court upheld EPA's separate mandate for advanced biofuels. EPA projected that 8.65 million gallons of cellulosic biofuels would be produced in 2012, but the court said, "While the program as a whole is plainly intended to promote that technology, we are not convinced that Congress meant for EPA to let that intent color its work as a predictor, to let the wish be father to the thought." The court also pointed out that refiners have no role in developing cellulosic biofuels yet are penalized if they can't buy the product.

According to a report by Biomass Magazine, "under the court's decision, the EPA is free to reinstate the volumes it had established, so long as the information available at the time would support the agency's conclusion that those volumes were reasonably achievable." Get more details here.

ERS FORECASTS 3% TO 4% INCREASE IN FOOD PRICES FOR 2013... Despite the severe Midwest drought, USDA's Economic Research Service (ERS) reports retail food prices were mostly flat for 2012. The food-at-home Consumer Price Index (CPI) rose a total of just 0.5% from January to December of 2012. But the drought's impact on food prices is expected to translate to higher food prices in 2013. ERS maintained its forecasts that both all food and foot-at-home (grocery store) prices will rise 3% to 4% in 2013. This increase would be above the historical average for both indexes. Get more details.

OBAMA ADMIN. MAY TAKE REGULATORY APPROACH TO MCOOL COMPLIANCE... Lobbyists for the National Farmers Union and R-CALF appear to have won over key members of the Obama administration in possibly taking a regulatory route to deal with a May 23 timeline for complying with a World Trade Organization (WTO) ruling against the U.S. mandatory country-of-origin labeling (MCOOL) ruling, rather than including language in a new farm bill that has an indefinite timeline.

The WTO ruled on June 29 that MCOOL unfairly discriminates against Canada and Mexico because it gives less favorable treatment to beef and pork imported from those countries than to U.S. meat. The U.S. labeling law requires grocers to put labels on cuts of beef, pork, lamb, chicken and ground meat or to post signs that list the origin of the meat.

MCOOL supporters say the program offers consumers valuable information about the origin of their food. Many meat processors oppose the provision, which they say would unnecessarily boost costs and disrupt trade. Get more arguments from both sides of the debate.

OBAMA ADMINISTRATION'S STEALTH APPROACH TO POLICY... Washington Consultant Jim Wiesemeyer says the executive order (by President Obama) and regulatory route (EPA, USDA, etc.) will likely be the route taken on many sensitive items during the second term of the Obama administration. Some of those actions could and likely should be challenged not only in Congress but in court. It is likely climate change issues will be dealt with this stealth approach to policy, Jim continues. Stay tuned for a very aggressive Obama administration. It could be a long four years.

SEED QUALITY ISSUES 'SPROUTING' IN BRAZIL... Damp, rainy, hot and humid conditions are common at this time of the year in Brazil's northern growing areas. Because beans are now planted earlier to help plants mature before soybean rust robs yield and to give growers time to plant a winter corn (safrinha) crop, Brazil's rainy season can make for a sloppy harvest. That's what is happening in Mato Grosso this year, according to South American consultant Dr. Michael Cordonnier.

The bean crop in Mato Grosso is about 5% harvested, but much more is ready to be cut. A
cold front that brought scattered rains to too-dry areas in southern Brazil this week is expected to stall over Mato Grosso next week, bringing heavy rains. Dr. Cordonnier says there are a few reports of beans sprouting in pods, but seed quality isn't a widespread concern (yet). "A bigger concern," says Dr. Cordonnier "is the longer soybean harvest is delayed the tougher it will be to plant the safrinha corn crop."

Dr. Cordonnier says Brazilian bean supplies won't be available for export until at least Feb. 10. Meanwhile, Brazil will start loading beans at the Port of Itacoatiara on the Amazon River in early February. The bulk of Brazil's soybean shipping season will start about March 1 at the Port of Paranagua. At Paranagua in southern Brazil, boats are already arriving and have a 45-day wait before being loaded, adding to shipping costs for bean importers.